AXIS CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥5.94B
• Operating Income: ¥612M
• Net Income: ¥407M
• EPS: ¥95.86

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: A solid but mixed Q3 with healthy top-line growth and resilient double-digit operating margin, offset by slight margin compression and flat-to-down bottom line. Revenue rose 8.0% YoY to 59.44, while operating income increased 3.3% YoY to 6.12, and ordinary income was up 0.5% YoY to 6.31. Net income dipped 0.5% YoY to 4.07, implying modest pressure at the bottom line despite growth in the core business. Operating margin stands at roughly 10.3% (6.12/59.44), with an ordinary margin of 10.6% and net margin of 6.8%. Based on the YoY growth rates, we estimate operating margin compressed by about 47 bps YoY (from ~10.8% to ~10.3%). Net margin also compressed by an estimated ~58 bps YoY, reflecting tax and below-the-line dynamics. Gross margin is 23.4%, indicating room for operating leverage but also suggesting cost pressure versus revenue growth. Equity-method income is not disclosed (single-entity, non-shosha), and non-operating income was modest at 0.35, driven mainly by dividend income (0.22). ROE calculates to 10.6% via the provided DuPont figures, supported by strong asset turnover of 1.169 and low financial leverage of 1.33x. The effective tax rate is elevated at 34.7%, acting as a drag on net profit conversion. Liquidity is robust: current ratio is 463% and cash is 30.23 against current liabilities of 9.12, implying a net cash posture and low refinancing risk. There is a small arithmetic inconsistency between revenue, cost of sales, and gross profit; our margin commentary relies on the reported gross profit and operating income figures. Cash flow was not disclosed, preventing an OCF-to-NI quality check or free cash flow assessment. Dividend affordability looks comfortable based on the calculated payout ratio of 38.6%, supported by balance sheet strength; however, FCF coverage cannot be confirmed. Forward-looking, the company appears well-positioned to fund growth and dividends from its balance sheet, but sustaining margin quality will hinge on pricing, mix, and utilization as wage inflation and project delivery costs remain watch points.

Profitability Analysis

ROE (10.6%) = Net Profit Margin (6.8%) × Asset Turnover (1.169) × Financial Leverage (1.33x). The most notable change YoY appears to be net margin compression, inferred from revenue +8.0% vs operating income +3.3% and net income -0.5%. Business drivers likely include a combination of softer gross margin and/or faster SG&A growth relative to gross profit, as the operating margin compressed by an estimated ~47 bps YoY. The net margin was additionally constrained by a high effective tax rate (34.7%), reducing the translation from operating to net income. Asset turnover remains a strength at 1.169, indicating efficient use of the asset base; leverage is low at 1.33x, limiting ROE magnification from gearing (a conservative positive). Sustainability: modest margin pressure could persist if wage inflation, subcontracting costs, or fixed-price project delivery risks are not offset by pricing and utilization gains; however, the double-digit operating margin provides a buffer. Flag: operating income growth (+3.3%) lagged revenue growth (+8.0%), implying negative operating leverage this quarter and potential SG&A or delivery cost intensity outpacing top-line expansion; SG&A ratio stands at ~13.4% of revenue.

Growth Assessment

Top line grew 8.0% YoY to 59.44, a healthy pace for a domestic IT/services-oriented business. Operating income rose 3.3% YoY to 6.12, and ordinary income increased 0.5% YoY to 6.31, indicating weaker incremental margins vs prior year. Net income declined 0.5% YoY to 4.07, reflecting higher tax drag and/or below-the-line headwinds. Non-operating income (0.35) contributed modestly (non-operating income ratio ~0.6% of revenue), with dividend income of 0.22 as the main component; no material one-time gains are disclosed. Profit quality from operations appears to be the main driver; however, with cost details limited, the precise source of compression (gross margin vs SG&A) cannot be fully isolated. Revenue sustainability will depend on backlog, order intake, client spending cycles, and pricing power against wage and subcontracting cost inflation. Given the low leverage and strong cash position, the company has capacity to invest in growth (hiring, capability expansions) without stressing the balance sheet. Outlook: steady revenue growth with a focus on defending margins through utilization and pricing; watch for tax normalization opportunities to support net margin.

Financial Health

Liquidity is very strong: current ratio 463.1% and quick ratio 463.1%. There is no warning on short-term liquidity (well above 1.0). Total liabilities are 12.09 against total equity of 38.34, implying a conservative capital structure (approx. D/E 0.32x). Equity ratio is approximately 75.4% (38.34/50.85), indicating a net-cash, equity-rich balance sheet. Cash and deposits (30.23) comfortably exceed current liabilities (9.12), minimizing maturity mismatch risk. Interest-bearing debt details are unreported; however, given the cash balance and low total liabilities, solvency risk appears low. Accounts receivable and inventories are unreported, limiting assessment of collection risk and working capital intensity. No off-balance sheet obligations are disclosed in the data provided.

Cash Flow Quality

Operating cash flow is unreported; thus OCF/Net Income cannot be calculated and we cannot assess cash conversion quality. Free cash flow and capex are also unreported, preventing coverage analysis for dividends or growth investments. The strong net cash position provides a buffer even if cash conversion is temporarily soft. With receivables not disclosed, we cannot evaluate DSO trends or potential working capital build; no explicit signs of working capital manipulation can be assessed from the available data.

Dividend Sustainability

The calculated payout ratio is 38.6%, which is comfortably within a generally sustainable range (<60%). DPS is not disclosed, and FCF coverage cannot be assessed due to missing cash flow data. Balance sheet strength (cash 30.23 vs current liabilities 9.12; equity ratio ~75%) suggests capacity to maintain dividends even through variability in cash generation. Policy outlook is not disclosed; if the company targets a stable or progressive dividend, current profitability and cash position appear supportive, but confirmation awaits OCF/FCF disclosures.

Risk Assessment

Business Risks:

• Margin pressure from wage inflation and subcontracting costs in a tight IT labor market
• Fixed-price project execution risk leading to cost overruns
• Potential client concentration or delayed IT spending cycles (not disclosed but typical for the sector)
• Goodwill and intangibles (1.86 and 1.97) create impairment risk if acquired businesses underperform
• Tax-rate volatility (effective rate 34.7%) impacting net margin

Financial Risks:

• Cash flow visibility is limited due to unreported OCF/FCF
• Receivables and DSO unreported, limiting assessment of collection risk
• Interest-bearing debt details unreported (though overall leverage appears low)

Key Concerns:

• Operating margin compression (~47 bps YoY) despite 8.0% revenue growth
• Net margin compression (~58 bps YoY) and net income down 0.5% YoY
• Data inconsistency between reported cost of sales and gross profit; reliance on provided gross profit for margin analysis
• High effective tax rate curbing bottom-line growth

Investment Implications

Key Takeaways:

• Healthy revenue growth (+8.0% YoY) with resilient double-digit operating margin (~10.3%)
• ROE of 10.6% driven by solid asset turnover (1.169) and conservative leverage (1.33x)
• Operating leverage turned negative this quarter; cost discipline and pricing will be key
• Balance sheet is very strong (equity ratio ~75%, net cash), supporting investment and dividends
• Earnings quality and dividend coverage cannot be validated without OCF/FCF

Metrics to Watch:

• Order backlog and book-to-bill to gauge revenue sustainability
• Utilization rate, billing rate, and wage inflation to assess margin trajectory
• SG&A ratio vs revenue growth to confirm operating leverage recovery
• OCF/Net income and free cash flow for earnings quality and dividend coverage
• DSO/receivables once disclosed, and effective tax rate normalization

Relative Positioning: Within domestic small/mid-cap IT services peers, Axis shows above-average balance sheet strength (net cash, high equity ratio), mid-teens EBITDA proxy implied by a ~10% operating margin, and a respectable 10.6% ROE supported by efficient asset use rather than leverage; near-term margin compression is a modest blemish versus peers maintaining flat-to-expanding margins.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis